They are a symbol of China’s technological prowess and the envy of the world. But the amazing web of high-speed trains is glued together by debt. After a funding frenzy during the past decade, the world’s second-largest economy now has the world’s largest railway network.

Covering 127,000 kilometers, or 78,900 miles, it could circumnavigate the planet three times.

Moreover, roughly 20% of that figure is made up of high-speed arteries, which crisscross the country, data released by the China Railway Corporation, or CRC, illustrated.

To put that into perspective, last year those bullet trains clocked up 29,000 km in operational mileage.

Still, the cost of what is considered a transport miracle has been astronomical.

“China’s high-speed rail mainly relies on debt financing, and the construction of the high-speed railway has caused CRC’s debt to surge almost tenfold from 476.8 billion yuan (US$70.7 billion) in 2005 to 4.72 trillion yuan in 2016,” Zhao Jian, the director of the China Urbanization Research Center at Beijing Jiaotong University, wrote in an opinion piece for Caixin Media earlier this week.

In 2017, the massive state-owned enterprise invested 801 billion yuan on new projects and, while last year’s figure has yet to be released, the number of big-ticket infrastructure developments looks certain to rise in 2019.

Indeed, this is all part of President Xi Jinping’s move to ramp up funding after fixed asset investment fell to a decade-low of 5.9% in the first 11 months of 2018.

Major driver

Since this is a major driver of growth, the slowdown acted as a brake on China’s economy, which is showing rapid signs of cooling as consumer spending dips and factory activity wanes.

The fallout from the trade war with the United States has only added to this toxic mix.

But there are risks in pursuing a high-speed future, according to Zhao.

“The cost is two to three times that of conventional railways,” he said. “And because high-speed rail can only transport people, not goods, there may be sufficient demand for it only in large, densely populated areas, where the income from fares can cover the construction and operating costs.

“At present, most of the country’s high-speed rail lines have idle capacity, with the notable exceptions of the Beijing-Shanghai and Beijing-Guangzhou lines. The indicator that best reflects the efficiency of rail transportation is called ‘transportation density’, which is the average transport volume per kilometer of railway per year,” Zhao continued.

“In 2015, the transportation density of the Beijing-Shanghai high-speed rail line was the highest in China, reaching about 48 million passengers per kilometers [PPK]. The Lanzhou-Urumqi high-speed rail line ranked the lowest with 2.3 million [PPK]. The average transportation density of high-speed rail in China was 17 million [PPK]. By comparison, the average transportation density for Japan’s high-speed rail system is 34 million [PPK],” he added.

For China Railway Corporation, the danger signs are already flashing with Zhao comparing the CRC to a “Gray Rhino,” a sprawling conglomerate which can charge at any moment, wreaking economic havoc.

The threat from such corporate creatures was addressed by President Xi at the start of a four-day study session for leading Communist Party cadres in Beijing last week.

In his keynote speech, Xi called for vigilance against unexpected “Gray Rhino” events in order to defuse major financial risks.

Zhao has simply highlighted the theme.

‘Rail network’

“Having the world’s largest high-speed rail network with a low transportation density is indicative of significant financial risk,” he said. “The ongoing construction of such a large high-speed network may place a greater debt burden on CRC, which runs the network, and local governments, making it a ‘Gray Rhino,’ or obvious threat to the Chinese economy.

“People often ignore the huge and growing debts of CRC, as they tend to believe that the central government has the money to cover its liabilities. The local governments’ debts for the construction of high-speed railway lines remain hidden, as they are mixed with other types of debts. The debts together could be as high as 18.29 trillion yuan, according to some estimates,” Zhao added.

Yet there is a silver lining to this multi-billion-dollar infrastructure policy. The social mobility aspect should not be underestimated when it comes to high-speed networks and rail development as a whole.

“It’s hard for infrastructure projects to turn a quick profit because of limits on what they can charge, but the social efficiency of offering convenience to a large population is significant,” Guo Lei, a senior macroeconomist with GF Securities, told the state-owned Global Times.

Liu Xuezhi, a senior analyst of the Bank of Communications, echoed those views, pointing out that “the value of high-speed projects [should] not be undercut by short-term ticket sales.”

“Overall infrastructure debt level is under control and investment is estimated to see 10% growth in 2019, which will be about 1.7 trillion yuan, and the providers of this new funding will attach greater importance to efficiency and returns,” Liu said.

Yet, there are still lingering concerns that excessive high-speed rail development equates to high-speed debt, which could derail China’s transport miracle.